The federal government insists it will be business as usual with the temporarily leaderless NSW government, which lost its premier in spectacular circumstances on Wednesday.

But federal Liberals admitted their brand had taken a "hammering" in the state after widening corruption investigations had roped in senior figures from both sides of politics.

The shock resignation of Barry O'Farrell came just as the two governments agreed on a multibillion-dollar infrastructure package designed to support the second airport at Badgerys Creek, and to assuage local fears of increased noise and traffic congestion.

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Mr O'Farrell's departure, a casualty of the Independent Commission against Corruption inquiry into Australian Water Holdings, has also increased the pressure on embattled Assistant Treasurer, Arthur Sinodinos.

Senator Sinodinos remains in a quasi-ministerial limbo, having voluntarily stood down last month to answer questions at the ICAC hearings about his role and level of knowledge in the management of Australian Water Holdings.

Federal Liberals were stunned and saddened on Wednesday morning when, instead of meeting Prime Minister Tony Abbott at Liverpool Council in Sydney's west to triumphantly unveil a $2.9 billion roads package, Mr O'Farrell was on his feet in the CBD and in full retreat.

The sudden turn of events caught journalists and even the Prime Minister off-guard, with the strain clearly showing on his face.

The normally even-tempered Mr Abbott responded angrily to a suggestion from a reporter that voters would now see the Liberal Party in NSW as corrupt and thus unable to deliver airport and related infrastructure as a result of the O'Farrell revelations.

He branded that "an entirely unjustified smear", calling on the reporter to back up the statement with evidence or retract.

"I think you should withdraw that and apologise because there is no evidence whatsoever for that," he said, his face barely concealing his deep feelings.

It was a moment that summed up the percussive impact on Liberal politics in NSW of Mr O'Farrell's resignation.

Liberals federally say the O'Farrell departure has weakened public confidence in politics across the board and the standing of the governing party in the most populous state - Mr Abbott's own.

One senior figure said it was unclear if Mr O'Farrell's resignation would make it harder for Senator Sinodinos to justify a return to the Abbott frontbench.

But another said it made his return all but impossible.

The hearing into AWH has already heard directly from Senator Sinodinos, a highly regarded former chief of staff to prime minister John Howard, who had left politics in 2006 to pursue a business career in Sydney.

But a subsequent inquiry is likely to drill down further on the murky relationship between senior political figures, cashed up businessmen, and the payment of political donations via means designed to circumvent the electoral laws.

Senator Sinodinos, 57, returned to Canberra after a six-year absence, filling a senate vacancy created by the departure of Helen Coonan.

During that time, according to his parliamentary biography, he was a "banker", although he was also a company director and chairman at AWH, and an executive member and honorary treasurer of the NSW state division of the Liberal Party.

The massive building program plan involves several major Sydney road upgrades, including the expansion of the Northern Road to four lanes from Narellan Road to the M4, and the upgrade "to a very high standard" of Elizabeth Drive from the M7 to the Northern Road.

Mr O'Farrell's absence also left the Prime Minister to announce that the NSW government would move to secure the rail corridor from the south-west rail link to Penrith, despite there being no federal funds involved.

Having styled himself as "the infrastructure prime minister", Mr Abbott said all of the projects were crucial to the state's development, to the local economy, and to the national economy.

212 comments

The Pommie PM looked very punchy and misogynistic yesterday when dressing down and demanding an apology from the female journalist who had every right to use the word "corrupt" if she wished.

Commenter

Tin

Date and time

April 17, 2014, 4:55AM

Maybe Tony is upset someone said "corruption" and Liberal Party" in the same sentence.

Commenter

wdawes

Date and time

April 17, 2014, 5:16AM

You sound just like any angry hotel association lobbyist, upset that you can't get a rubber stamp on your liquor license.

Commenter

Payback

Location

Sydney

Date and time

April 17, 2014, 5:19AM

She can throw around the word 'corrupt' as much as she wants but when pressed to provide evidence for her statement she should be able to. It's basic common sense. The Australian Prime Minister was well within his rights to reject the premise of the question rather than blindly endorse it.

Didn't a former Fairfax-favoured PM warn a journalist not to write 'crap'? Nary a peep from the Left regarding this vulgarity. So heaven forbid the current Prime Minister should forcefully and politely refute the smear put forward by the journalist.

Commenter

Nulla

Date and time

April 17, 2014, 5:39AM

@Tin: Our illustrious pommie PM knew his stuff at the press conference. What was that bloody woman journalist doing at my infrastructure announcement anyway? Any editor worth his salt knows that roads and airports are men stuff and having that woman pose questions that were none of her business is really a bridge to far. To add insult to injury she said she was from "The Australian".

Commenter

JohnC

Location

Gosford NSW

Date and time

April 17, 2014, 5:45AM

@TinOperational reasons. We will decide which questions journos ask and the manner in which they ask them.Maybe she was too feisty for him.

Commenter

Conraddd

Location

Darwin

Date and time

April 17, 2014, 5:46AM

He trained the journalists to insinuate and smear the opposition. Since Sir Pisitory is still in opposition, STILL trying to hit the ball, his beloved Murdoch press is hard at work, smearing.

I think, even the most fervent LNP luvvies would be thinking "OMG, its true, the guy really is a dunce"

The rest of us certainly are.

Commenter

Axis

Location

Gleetown

Date and time

April 17, 2014, 5:46AM

Tin - what rubbish. I thought Abbott handled the situation well and the reporter got what she deserved. What is amazing is that O'Farrell is gone but no legal action is likely to be taken against Obeid. Crazy stuff.

Commenter

Flanders

Date and time

April 17, 2014, 5:48AM

Little over sensitive I thought. How dare she mention that word, in relation to "on water" matters.His face 'frozen' with that signature smirk when things get a bit tricky. And in other news Cadbury's chocolate sales soar through the roof, a timely diversion from not one of his 'better weeks'. Oh and a couple of Royals in town, upstaged by a smear.

Commenter

A country gal

Date and time

April 17, 2014, 5:50AM

He was showing his true colours! Having known the name of the female journo, he chose to call her madam! Why on earth does ANY Australian support this arrogant, sexist, bullish man. He should never have been elected PM. He has also gone out of his way to be one of the most distructive people ever elected into public office in Australia. Times were tough under Howard for any progressive thinker, but this is impossible. He is also quite two faced when it comes to taking what he has dished out. His aggressive feeding of the media when Gillard was is government is not being dished out to him but any critism quite simply cannot be taken by him.

16 Apr
It didn't take long for the brick bats to start flying Barry O'Farrell's way. Within hours of his resignation, one Liberal source declared his decision was unsurprising because "he was never prepared to fight for anything".

16 Apr
It is rare for the resignation of a leader following ICAC revelations to be greeted with approving statements from business groups, volunteer community organisations and even, after a fashion, from the opposition.

16 Apr
Was news of Premier Barry O'Farrell's $3000 bottle of wine strategically leaked to the media to bring him down? That's the question being asked by the barrister leading an ICAC inquiry into Australian Water Holdings.

16 Apr
Gary Sturgess may not be a household name, but it should be. As the architect and father of the NSW Independent Commission Against Corruption his legacy has been longer lasting than he expected, or wanted.